Oil forecasts fail so often that it's puzzling that the media, governments, corporations, and the public put so much faith in them, Cobb writes. Those whose plans were based on the IEA's 2000 oil forecast were completely blindsided by developments just a few years later.

A man demonstrates how an oil sample is taken at a drilling rig site outside of Williston, N.D. Even in the United States drillers have ended up focusing on a few 'sweet spots' that yield commercial quantities of oil or natural gas, Cobb writes.

(The IEA included in its 2000 supply projections not only crude oil plus lease condensate, which is the definition of oil, but also natural gas plant liquids--only a small fraction of which can be substituted for oil--and refinery processing gain which is the result of applying energy to break oil into its components, causing the final volume to expand. The agency refers to the resulting number as "oil" supply. But, clearly this number is not really just oil supply, and this practice continues to confuse policymakers and the public.)

So, what made the IEA so sanguine about oil supply growth in the year 2000? It cited the revolution taking place in deepwater drilling technology which was expected to allow the extraction of oil supplies ample for the world's needs for decades to come. But, deepwater drilling has turned out to be more challenging than anticipated and has not produced the bounty the IEA imagined it would. This is not to say that it hasn't been a critical adjunct to world oil supplies. It's just that deepwater oil production hasn't been able both to make up for declines in production elsewhere AND grow supplies beyond that--something that has resulted in a bumpy plateau for world oil production (crude plus lease condensate) starting in 2005.

Perhaps the IEA means that using these new techniques to unlock so-called light tight oil deposits beyond the United States will bring about this supply shock? Nope. The report states specifically that over the forecast period through 2018, the IEA does not expect significant development in other countries of these deposits using the new type of hydraulic fracturing.

Perhaps the agency noticed the withdrawal of ExxonMobil Corp. last year from Poland. The company said it could not find commercial quantities of hydrocarbons in what had been billed as Europe's most promising shale gas deposits. Shale gas, of course, is extracted using the same fracking techniques as tight oil. And, both oil and natural gas tend to appear together in such deposits.

The point is not that there is no exploitable tight oil or shale gas outside the United States. Rather, the quality of those resources varies far more than the industry has led the public to believe. At first, the oil and gas industry portrayed such deposits as subject to what it called the "manufacturing model." The notion was that a company could drill anywhere within known deposits and extract commercial quantities of oil and/or natural gas.

The reality is far different. Even in the United States--the center of the putative boom--drillers have ended up focusing on a few "sweet spots" that yield commercial quantities of oil or natural gas. These can represent as little at 15 percent of the total area of the formation.

The IEA seems to be unaware of certain key information that is publicly available or doesn't understand the significance of that information. And, the agency doesn't seem to remember what it said in its last forecast. Here is a sampling:

The production decline rate of hydraulically fractured tight oil wells is around 40 percent PER YEAR in the two most prolific plays, Eagle-Ford in Texas and Bakken in North Dakota. This means that drillers must replace 40 percent of last year's production capacity EACH YEAR before they can increase the overall rate of production from their tight oil wells. The average annual production decline rate for existing wells worldwide is around 4 to 5 percent. Essentially, the IEA doesn't appear to understand that it is expecting oil extracted from wells that decline at a rate 10 TIMES FASTER than average wells worldwide to make up for worldwide declines elsewhere AND provide significant growth in world oil supplies. But, the agency apparently did not look at publicly available well data from each state to determine annual decline rates and their implications for future supply. The IEA seems simply to have taken self-interested industry forecasts on their face--forecasts made with an eye toward engendering confidence among investors and lenders and thereby pumping up the value of lucrative stock options held by company insiders.

The IEA talks about a surge in U.S. natural gas production. Yet, it seems unaware that natural gas production in the United States has been flat since January 2012 even as domestic gas prices rose from $1.82 per thousand cubic feet to above $4 today. The so-called shale gas boom has ended, and we are now finding out just how costly it will be to bring that gas out of the ground. Correspondingly, the rate of extraction will not be so great as promised either.

In just a few months time, the IEA has dramatically altered its view about the trajectory of world consumption of liquid fuels. Its 2012 World Energy Outlook released in November prophesied that world demand would reach 99.7 mbpd by 2035. The more recent report mentioned at the beginning of this piece, the Medium-Term Oil Market Report, now projects that world demand will reach 96.7 mbpd just five years from now, implying a growth trajectory far in excess of that projected in the agency's 2012 report.

The IEA says it does not forecast prices and then tells us it uses the futures prices for its model. What its model implies is continuing high prices for oil and oil products. The IEA makes no attempt to understand the effect that high prices have on the world economy and its ability to grow under such circumstances. Nor does it address the dampening effect of high prices on demand, calling into question its projection of rapid increases in demand.

The IEA then tells us that so-called oil production "capacity," the basis of which is never described, will grow faster than demand. This would imply falling prices as excess capacity overhangs the oil markets. But that would mean that the high prices which it agrees are needed to extract tight oil profitably would disappear. So, how would this allow tight oil volumes to grow dramatically if extraction is unprofitable or only marginally profitable? This contradiction is never addressed.

Burning all the known reserves of fossil fuels would put us on a path to a climate catastrophe, something the IEA acknowledged in the executive summary of its 2012 World Energy Outlook saying, "No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal, unless carbon capture and storage (CCS) technology is widely deployed." CCS technology is not being widely deployed, nor is it likely to be. By contrast the agency's most recent forecastreads like a promotional brochure for the North American oil and gas industry. How does that square with the agency's concern about climate change?

It's not unusual for government-sponsored organizations such as the IEA to be given contradictory directives, in this case, to promote adequate energy supplies and also to warn about climate change. There has been little mention of this contraction in the media because the media has focused on what it perceives as sensational news about oil and natural gas supplies in North America.

Given that focus, it is troubling that neither the agency nor the media have bothered to revisit past forecasts. It turns out such forecasts fail so often that it's puzzling that the media, governments, corporations, and the public put so much faith in them. Those whose plans were based on the IEA's 2000 forecast were completely blindsided by developments just a few years later.

We would be much better served by looking at what we know right now from publicly available figures about actual trends. It's not as exciting as dramatic predictions about a future of plenty--or one miserable from want. But it's a far firmer basis for sound policy.

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